From Riches To Rags

HOUSTON, Feb. 25 â For Kenneth L. Lay, it has been a true reversal of fortune â and not just in the courtroom.

Once at the pinnacle of Houston's financial and political elite with a fortune worth as much as $400 million, Mr. Lay, the former chairman of the Enron Corporation, is now facing financial ruin.

While he has talked about his shrinking wealth since Enron's collapse, he has managed to keep up appearances, continuing to live in a full-floor apartment in the city's affluent River Oaks section. But already, according to personal financial records obtained by The New York Times, Mr. Lay has fallen out of the ranks of the city's millionaires, with a stated net worth of less than $650,000.

And that financial assessment is probably on the optimistic side. His assets, for example, include $1.9 million held in a trust that is almost sure to be eaten up by legal fees.

In addition, Mr. Lay, 63, faces potential liability from lawsuits that were filed against him by shareholders and others after Enron's collapse that would almost certainly force him into personal bankruptcy. Mr. Lay may also be forced to forfeit his remaining home, along with some other assets, if he is convicted in the criminal fraud trial that is now taking place in Houston.

Not everyone involved in the Enron debacle, of course, has fared as poorly as Mr. Lay.

Jeffrey K. Skilling, his co-defendant and onetime successor as chief executive, emerged from the Enron collapse in far stronger financial shape, mostly because his stock was not encumbered by loans as Mr. Lay's was, and he cashed out a big chunk of his holdings before Enron's troubles were exposed.

Other high-level executives who were never charged with wrongdoing â including Lou L. Pai, who once ran Enron's retail operations, and Rebecca Mark-Jusbasche, the former head of its international effort â left the company with tens and hundreds of millions of dollars, which they have retained.

Mr. Lay's failing fortune underscores a recurrent â but often overlooked â theme in recent corporate collapses. Despite the public image of corporate chieftains at scandal-plagued companies escaping the debacles with their pockets stuffed with cash, several have been pushed far down the road toward insolvency long before a civil or criminal judgment is entered against them.

In a number of cases, that is because the chief executives were as reckless with their personal finances as they were with the management of their companies. Bernard J. Ebbers at WorldCom and John J. Rigas at Adelphia Communications, both convicted of fraud, borrowed hundreds of millions of dollars from their businesses to purchase their own companies' stock.

When the companies collapsed into bankruptcy, those shares were worthless, but the executives still owed the money.

Mr. Lay, for somewhat different reasons, finds himself in a similar situation. As a result, analysts said, Mr. Lay's finances appear tattered beyond repair â regardless of the outcome of his criminal trial. And that is just the way it should be, lawyers for shareholders contend.

"If the message that emerges after WorldCom and Enron is that the executives who preside over corporate fraud are ruined, that is a message I support 100 percent," said Sean Coffey, a shareholder lawyer.

Michael W. Ramsey, Mr. Lay's lead criminal lawyer, said his client's financial collapse underscores that his sales of Enron stock in the company's waning days were not motivated by knowledge that it was failing. He said the defense would make clear during the trial that Mr. Lay never profited from the sale of Enron stock.

"Ken Lay put his money where his mouth was," Mr. Ramsey said. "He held as many shares of Enron stock as he possibly could. He never sold, other than by forced sale, which led to his financial ruin. Ken was a company man to the end. And he suffered all the financial consequences of that decision, along with all the other employees, who he has deep sympathy for because he shared their fate."

To be sure, Mr. Lay has sufficient cash to cling to a few scattered vestiges of his old lifestyle. He and his wife Linda still occupy the same apartment in an expensive condominium building in the wealthy River Oaks section of Houston. The apartment, however, cannot be sold because it is subject to forfeiture in the criminal case.

On days when he is not on trial, where he is accused of conspiring to defraud investors in the company he helped build, Mr. Lay spends time at the exclusive River Oaks Country Club, takes walks past the finely manicured lawns of his neighborhood and dines at some of his favorite restaurants, including La Griglia, a bustling Italian eatery known for its power lunch clientele.

But today, Mr. Lay has expenses that were never part of his previous life. He has spent $20 million of Enron insurance proceeds for his defense, including money supplied to Carrington, Coleman, Sloman & Blumenthal in Dallas, which is defending his civil case and providing legal support in the criminal case, according to one lawyer involved with the case.

In addition, Mr. Lay has spent $5 million of his own money and has $4 million in unpaid legal fees. He has paid $2.7 million of the $3 million fee his Houston defense lawyers, Michael W. Ramsey and George M. Secrest, are charging. Mr. Lay also agreed to pay Carrington, Coleman hourly for court time.

In all, Mr. Lay has already spent $25 million on his defense and expects to spend close to $30 million in total, the lawyer said.

Those additional legal costs only worsen an already grim financial picture. The $650,000 net worth figure includes a $1.9 million note receivable, money that is payable to Mr. Lay from a trust established to hold his legal fees. Most, if not all, of that money is likely to be used up in the criminal and civil litigation.

The asset picture is not pretty. In early 2001, the year his company collapsed, Mr. Lay owned marketable securities of $339 million. Today he possesses less than $1,500, according to the records. His current assets â excluding the note receivable for $1.9 million â are just under $220,000. His retirement benefits, once worth $68 million, have fallen to $3.5 million.

Almost half of his total assets, or $4.2 million, is in real estate â mostly his apartment.

All told, Mr. Lay has $10.6 million in assets, the documents show, weighed against current liabilities of $9 million, plus an additional $930,000 in longer-term liabilities.

Of course, there will always be those who suspect that executives like Mr. Lay managed to squirrel away millions offshore, in secret bank accounts, but that seems more the stuff of a Grisham novel than a reality here. Such transfers would have left a trail, and after four years of investigation â in which government prosecutors have subpoenaed every bank and financial record and interviewed all of his financial advisers and accountants â no evidence of such hidden cash reserves has been found. Indeed, Mr. Lay's financial picture matches what lawyers who are suing him said they expected to find.

In the end, legal analysts said that the collapse of Mr. Lay's personal finances seemed a natural result of the way his wealth was formed: through the growth of a company that proved to be a management debacle.

"We shouldn't feel guilty for enjoying the fact that these people are no longer wealthy," said Stephen Meagher, a former federal prosecutor who is now a lawyer in private practice in San Francisco. "I find it hard to feel bad for Ken Lay. Many, many other people lost their wealth and were put into poverty by the Enron collapse. But whether he is guilty is a question for a jury."

If his personal finances are on his mind, Mr. Lay has not let on. In the courtroom, he is a picture of stoicism. He barely speaks to reporters or even to his own lawyers while in the federal courthouse here. More often than not, he takes notes, glancing up only occasionally to study the jurors.

In better times, Mr. Lay, the son of a Baptist preacher who grew up dirt-poor in rural Missouri, was a quintessential self-made man who learned to carry the trappings of corporate wealth and power with ease. He was prominent in Houston's high-level business and social circles, setting up a charitable foundation that made him one of Houston's biggest philanthropists. .

But now Mr. Lay faces the consequences of a process he helped usher into being. In the wake of Enron's spectacular collapse, the federal government and civil plaintiffs' lawyers have sought to essentially impoverish executives involved in corporate malfeasance. And if they are convicted of a crime, the powerful forfeiture and money-laundering laws can be used to squeeze them dry.

Mr. Ebbers of WorldCom, for example, agreed last September to pay $45 million in cash and assets as part of $6.15 billion in legal settlements for victims of the WorldCom fraud. Civil lawyers, working with prosecutors, scooped up nearly all of Mr. Ebbers' personal fortune of about $40 million.

His family was left with $50,000 in cash and his home in Jackson, Miss., worth a few hundred thousand dollars, Mr. Coffey said. Mr. Ebbers was once worth $1 billion on paper.

Mr. Coffey is now the lead lawyer pursuing money from Richard M. Scrushy, the former chief executive of HealthSouth, who was acquitted last June of a $2.7 billion fraud. Mr. Coffey said he is undaunted that the acquittal will make it tougher to win a civil case against Mr. Scrushy. The standard of proof in civil cases â as was demonstrated in the successful wrongful death lawsuit against former pro football player O. J. Simpson after he was acquitted of murdering his ex-wife â is much lower than in a criminal case.

"We plan on doing an O. J. with Mr. Scrushy," Mr. Coffey said.

William S. Lerach, the plaintiff's lawyer who is leading the charge in the civil case against Enron and its executives, said he does not expect to get any money out of Mr. Lay, mostly because the Justice Department and federal regulators are bent on engineering Mr. Lay's financial ruin.

"When you get caught up in a fraud of the size and extent of Enron," Mr. Lerach said, "I don't think as a C.E.O. you can ever get rid of it. It haunts you until the day you die. For him, there is no way out."

Alexei Barrionuevo reported from Houston for this article, and Kurt Eichenwald from Dallas.

Only a millionaire with the intellect of a professional troll, would be dumb enough to neglect carefully concealing a significant portion of his net worth where nobody can ever find it. Hint: Offshore bank accounts are not the only available method.

Good to see that I am still not in your head any more.....you know, your "immunity" and all that....

<img src=http://members.cox.net/stockdevil/Simley.gif>

Quote from Rearden Metal:

Only a millionaire with the intellect of a profession troll, would be dumb enough to neglect carefully concealing a significant portion of his net worth where nobody can ever find it. Hint: Offshore bank accounts are not the only available method.

"Ken Lay put his money where his mouth was," Mr. Ramsey said. "He held as many shares of Enron stock as he possibly could. He never sold, other than by forced sale, which led to his financial ruin. Ken was a company man to the end. And he suffered all the financial consequences of that decision, along with all the other employees, who he has deep sympathy for because he shared their fate."

Whereas Ebber's truly looted WorldCom, it appears Lay really didn't have a clue as to the immense troubles of Enron's balance sheet. (I believe he was CEO for a relatively short time prior to Enron's collapse). Much like Frederick H. Joseph, CEO of Drexel. Joseph took his bonus in stock instead of cash weeks before Drexel bit the dust. Sometimes market forces are bigger than the man......

Quote from Rearden Metal:

Only a millionaire with the intellect of a profession troll, would be dumb enough to neglect carefully concealing a significant portion of his net worth where nobody can ever find it. Hint: Offshore bank accounts are not the only available method.

Quote from Pabst:
Whereas Ebber's truly looted WorldCom, it appears Lay really didn't have a clue as to the immense troubles of Enron's balance sheet. (I believe he was CEO for a relatively short time prior to Enron's collapse). Much like Frederick H. Joseph, CEO of Drexel. Joseph took his bonus in stock instead of cash weeks before Drexel bit the dust. Sometimes market forces are bigger than the man......